To you, debt may simply be debt. If you happen to be swimming in it, personal bankruptcy may be your best option to stop any actions that your creditors may be preparing to take against you while also retaining important property such as your home, car, and other valuable assets. However, once you become involved in the bankruptcy process, you’ll quickly learn that the court does not treat all debt the same. Understanding the different types of debt will help you in determining the type of bankruptcy protection you may choose to seek.
When discussing the details of your case, you may hear the following three terms used in abundance:
Secured debts are those for which your creditors carry security interest on your property (such as a lien). In general, any debt for which the property serves as collateral (like your home or automobile) is considered to be secured. While a bankruptcy may discharge your personal liability for such a debt, your creditor can use its security interest to come in and repossess the property. If you want to file a Chapter 7 and keep the property held by your secure debts, you can. However, you need to continue to make your payments on it. In a Chapter 13 case, your secured debt payments may be included in your bankruptcy repayment plan.
Unsecured debts are those which are not supported by collateral, such as credit card debt. While most unsecured debts are dischargeable through bankruptcy, there are some exceptions. Priority debts, such as tax obligations or child support payments, must still be paid in full, either through your Chapter 13 payment plan, or the liquidation of assets in a Chapter 7 case.
If all of this sounds remarkably complex, it’s because it is. The exact details of determining how all of your debt is treated in your bankruptcy case are simply too vast to be adequately explained here. However, there are resources at your disposal that can provide you with the in-depth knowledge needed in order to make informed decisions, such as those found in the Utah Bankruptcy Law Handbook. Couple those resources with the advice available from bankruptcy professionals, and you’re virtually guaranteed to see your case deliver you the debt relief that you so desperately need.